AFRICA is sliding back into economic decline hastened by the collapse of commodity
prices that leave the continent exposed to the threat of increased fragility
and rising debt. Most worrying of all, the migrant crisis that has assailed
European nations is seen as further evidence of desperate Africans fleeing
hardship and depravity.

These
are the type of storylines that have once again become the stock-in-trade for
global - and even some African - media outlets.
Are they justified, are they even accurate?

Carlos
Lopes, Executive Secretary of the UN Economic Commission for Africa (UNECA), headquartered
in the Ethiopian capital Addis Ababa, strongly disagrees and counters these views,
which he considers distorted.

Speaking to
Mail & Guardian Africa on the
sidelines of the Africa Media Leaders Forum in Johannesburg this past week, he
said it was incumbent on Africans to take control of this narrative so that there
is a more intelligent and truthful understanding of the realities on the
continent.

A cross section of the audience at the AMLF conference. (Photo/Johann Barnard/M&GAfrica).

He
summarised these truths into five key points:

DISTORTED MESSAGES, BUT BY WHOM?

Those
in the know, including the likes of Ernst & Young, the World Bank, Rand
Merchant Bank, McKinsey, Deloitte & Touche, and Standard Chartered Bank
have all recently expressed positive assessments of economic growth, disposable
income, savings and investment attractiveness.

This
runs counter to the generally-held view that African nations are slipping back
into negative, more risky territory.

“The
problem is that the mainstream view gets completely distorted and does not even
follow excellent research by institutions that are very credible. [The issue is
that] they are not in the business of disseminating good news, they’re in the
business of advising their clients,” Lopes said.

DEBT IS NOT ALWAYS A SIGN OF DISTRESS

Contrary
to popular perception, Africa is extremely well placed with regards to its debt
levels. In fact, far more so than many developed economies that are often
presented as worthy of emulation. Japan is a case in point with a GDP to debt ratio of 200%!

Lopes
said the problem originates from skewed thresholds used by the International
Monetary Fund (IMF) to measure debt sustainability.

“Africa,
by far, is the continent with the best sustainability indicators. Those
thresholds are very different depending on the country. For instance, for
developed economies the threshold is 80% of GDP. For Africa, they will say it
is 30%, so the moment it reaches 32% they say it is unsustainable. But this is
not Greece nor Japan.”

He
added that one of the reasons for the different treatment of African nations is
due to risk perception or the way an economy is structured. One of the negative
side effects of these reports is that they have influenced the behaviour of
central banks.

“Our
central banks have between $500-$600 billion in reserves, of which the bulk is
not invested in Africa because they say it is too risky. This means our savings
are being used elsewhere for others’ benefit.

“This
is just one example of how the debt discussion has to be put in context. The
Economic Commission for Africa has been engaging central bank governors to be
more holistic of the appreciation of their role and to be less risk averse in
relation to African investment. It has the best return on investment anyway,
despite the risk.

“In
terms of the capacity to [take on debt] Africa has the lowest debt to GDP ratio
- which means they can actually borrow themselves through the crisis,” he said.

“In
a country like Algeria with 2% debt to GDP ratio, what is the problem with
getting a bit of debt. A lot of news focuses on countries going to the market
and present this as a sign of crisis. It is not, it is a sign of economic
activity.”

He
cited the example of Nigeria that had recently announced a doubling of the
public budget due to growing investment and the decision to leverage this to
counter the commodity crisis.

LOOK EAST, BUT NOT AS FAR AS CHINA

Lopes was quick to dispel the myth making the
rounds of China’s vast investment in the continent. Africa’s proportion of
total Chinese foreign direct investment (FDI) stock is less than 1% of the
country’s total global investment.

India,
on the other hand, invested as much as 16% of its outward FDI, valued at $70
billion, in Africa in 2013. What is more, Africa is responsible for 26% of
India’s total inward FDI
stocks
at $65 billion - more than Brazil, China, the Russian Federation and the USA.

“We
have to confront the public with new narratives. We have to also use them for
our negotiations and dialogue with our friends. It is important for people to
know that all the sound and buzz about China’s investments in Africa actually
is very very misleading,” he said.

THE COMMODITY FALLACY

One
of the big stories about African nations’ economies of recent months has been
the fall in commodity prices. The truth, however, is much more revealing.

The
first point to bear in mind is that not all commodities are the same, and
global commodity indexes make no distinction between African commodities and
the wholesale basket of these goods.

“We
need to make the distinction between commodities and the picture doesn’t look
as bad as it appears,” Lopes pointed out.

In
addition, only a third of Africa’s growth has come from commodities, with the
remainder from internal consumption. This is supported by the burgeoning middle
class, increasing disposable income and public savings rates.

THE FUTURE MANUFACTURING POWERHOUSE

Allied
to the economic prospects due to internal consumption is the potential for
local production to increase to meet this demand. Africa’s population is
expected to double to two billion by 2050, of which 500 million will be
considered middle-class consumers.

While
much of this promise of growth can be attributed to local manufacturing of
goods to meet the needs of the continent’s growing population, the agricultural
sector holds particularly exciting potential.

“Manufacturing
and value addition is about 10% of GDP, which is very low, and agro-processing
has huge potential because productivity is very low, so any gain will be quite
significant. For instance, we have about 5% of Africa’s agriculture that is
irrigated so if we go to 10% that is huge.”

The
continent could also benefit from a shift in industrial capacity in China,
where labour costs have risen and there’s a move to a more consumer-driven
economy, although other regions in Asia hold the competitive advantage with
respect to productivity.

“What
will make Africa attractive is that it is urbanising faster than other parts of
Asia, and these are conditions that could be attractive. And we will have a
huge captive market for the low-end value production such as shoes, textiles,
toys, plastics, you name it. So we will probably be the next manufacturing
powerhouse.”

The
picture painted by Lopes is one of tremendous potential waiting to be
unleashed.

“From a historical perspective, Germany took 60
years to double its GDP, the UK took 150 years. Africa has done it in 15 years.
This is why we should believe this ascendent curve is significant because there
is only one country has beaten us, and that is China.”